SVN | Research Economic Update 6.14.2024

1. INTEREST RATES

commercial real estate

The Fed’s preferred inflation gauge

2. SUMMARY OF ECONOMIC PROJECTIONS

3. CONSTRUCTION SPENDING

4. INVESTORS TAKE ON CRE

5. FORECLOSURES RISE

6. HOME PRICE EXPECTATIONS

commercial real estate, real estate

U.S. Home Price Expectations, Fannie Mae

7. CPI INFLATION

8. SECOND QUARTER CONSTRUCTION INSIGHTS

9. CMBS DELINQUENCIES

Commericial real estate, industrial real estate, multifamily real estate, office real estate, retail real estate

CMBS Deliquency Rates, Tepp

10. MAY JOBS REPORT

 

SUMMARY OF SOURCES

1. LARGE FUNDS INCREASE CRE FOOTPRINT

2. FORECLOSURES FALL

commercial real estate

3. LOGISTICS MANAGERS’ INDEX

4. CMBS DELINQUENCIES SPIKE

5. RETAIL FOOT TRAFFIC REBOUND

6. CPI INFLATION

commercial real estate

7. REPUBLIC FIRST FAILURE

8. INTEREST RATES

9. APRIL JOBS REPORT

10. CONSUMER SENTIMENT

 

SUMMARY OF SOURCES

 



 

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1. HOMEBUYERS ADJUSTING TO HIGHER INTEREST RATES

2. WHY HAVEN’T RATE HIKES REDUCED SPENDING?

3. LOGISTICS ACTIVITY SURGES, FASTEST IN 19 MONTHS

4. HAS OFFICE ACTIVITY REACHED ITS FLOOR?

5. CPI INFLATION

6. FOMC MEETING MINUTES

7. SUMMARY OF ECONOMIC PROJECTIONS

8. CONSTRUCTION SPENDING

9. MARCH JOBS REPORT

10. BLACKSTONE GOES ON INVESTMENT “OFFENSIVE”

 

SUMMARY OF SOURCES

 

1. CURRENT ECONOMIC CONDITIONS (BEIGE BOOK)

2. CRE MARKET SENTIMENT

3. WHITE HOUSE EFFORTS TO SUPPORT MANUFACTURED HOUSING

4. SHIFTS IN INTEREST RATE FORECASTS

5. FEBRUARY JOBS REPORT

6. CONSUMER SENTIMENT

7. FED’S WALLER DOWNPLAYS CRE CRISIS

8. SPECIAL SERVICING RATES INCREASINGLY DIVERGE

9. CPI INFLATION

10. EXEMPTING AFFORDABLE HOUSING FROM BOND VOLUME CAPS

SUMMARY OF SOURCES

1. FOMC INTEREST RATE DECISION

2. SENIOR LOAN OFFICER OPINION SURVEY

3. MORTGAGE RATES AND APPLICATIONS

4. 2024 HOUSING MARKET PREDICTIONS

5. HOUSEHOLD DEBT

6. JANUARY JOBS REPORT

7. JOB OPENINGS AND LABOR TURNOVER

8. LOGISTICS MANAGERS INDEX

9. CONSTRUCTION SPENDING

10. UNITED STATES ECONOMIC OPTIMISM INDEX

 

SUMMARY OF SOURCES

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1. DECEMBER JOBS REPORT

2. FOMC MEETING MINUTES

3. HOMEBUYERS’ MONTHLY PAYMENTS DROP

4. SFR INVESTMENT TRENDS

5. NON-RESIDENTIAL CONSTRUCTION MOMENTUM

6. INFLATION OUTLOOK

7. CMBS DELINQUENCIES

8. RETAIL INVENTORIES

9. WHOLESALE INVENTORIES

10. REDBOOK INDEX

 

SUMMARY OF SOURCES

Banks hold over half of $6 trillion in commercial real estate loans, with symptoms of stress having appeared, according to the 2023 annual report.

Multiple financial dangers for the United States were identified by the Financial Stability Oversight Council, a remnant of the Dodd-Frank Act that comprises a wide range of federal banking regulators and others, in its 2023 annual report. Commercial real estate comes first on the list.

$6 trillion in loans at the top of the CRE segment as of Q2 2023, half of which are on bank balance sheets because they aren’t sold to government agencies like residential mortgages are. Furthermore, nearly half of all U.S. banks offer the greatest amount of loans in the CRE sector.

No one who has been following the market should be surprised by the concentration, especially considering that “the CRE market faced a rise in vacancy rates and declines in value for some property types, elevated interest rates, heightened CRE loan maturities, inflation in property operating costs, and an increase in CRE loan delinquencies.”

The agency expresses a concern that many in the CRE have voiced. According to the research, high interest rates raise refinancing costs for borrowers and can result in declining property values across CRE sectors. The borrower might not be eligible to refinance the loan at maturity without an additional equity infusion if the property value has significantly declined since the time of financing. As a result, the lender may suffer losses if the loan needs to be restructured or goes into default. Losses from a portfolio of CRE loans may seep into the larger financial system as they accrue.

This may lead banks to liquidate loans and real estate, further depressing values, generating a vicious cycle, and limiting credit availability. Loan distress is already evident; in the second quarter of 2022, the bank default rate increased by 0.74 percent. Delinquencies for CMBS are also higher.

Another worry is that relationships between banks, insurance providers, real estate investment trusts, and private lenders could allow bank stress to spread.

“Supervisors, financial institutions, and investors continue to closely monitor CRE exposures and concentrations and to track market conditions,” according to several recommendations made by the FSOC.

“Resilience to potential stress, ensuring adequate credit loss allowances, assessing CRE underwriting standards, and reviewing contingency planning for a possibly protracted period of rising loan delinquencies” are some of the recommendations for continuous assessment of loan portfolios.

 

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale.



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